Goldman on Gold: We've Just Been Through a Decade

Goldman Sachs, which last week astutely changed its long gold call to a short recommendation, says a huge shift has just happened in the commodity market, especially in bullion and natural gas.

"There are weeks when decades happen," Goldman analysts wrote in a research note on Tuesday. "Over the previous five years the two highest conviction trades in the commodity complex were being long gold in response to the debasing actions of central banks around the world and short natural gas in response to the shale revolution."

"These two trends have now likely reversed and our conviction in these new trends has risen significantly over the past month," Goldman analysts added.

The firm's commodity research team recommended a short gold position on April 10 at $1,586 an ounce and recommended going long $4.20 natural gas call options on April 4. Those two trades have made investors money.

On Tuesday, Goldman went a step further and lowered the stop price on its gold trade to $1,400 from a target of $1,450 a week earlier.

Investors dumped commodities on Monday in a broad sell-off, with gold suffering its worst two-day loss in 30 years. Gold extended its falls on Tuesday to around $1,321 an ounce but then bounced back to $1,391.

While Goldman's recommendations made money for investors in gold and natural gas, the firm's calls on copper and crude oil haven't proved to be as successful.

Goldman closed out its long Brent crude recommendation on Monday, according to both Reuters and the Financial Times, with a loss of 15 percent for investors who followed the call.

"Although we maintain our bullish 3-month targets on oil and copper, the base metals complex is likely closer to a bottom than oil, which is why we exited our long oil recommendation yesterday but maintain our long copper view with conviction," it said.

"In oil we believe that the market will need to see evidence that the recent product weakness is created by an exaggerated seasonal swing and not a deeper underlying economic weakness before it can rally again."

The current environment has created significant headwinds to Goldman's current $110 a barrel Brent forecast and $9,000 per metric tonne copper forecast, it said.

Natural Gas the New Safe Haven?

The commodities sell-off that began on Friday was sparked by a lower print for Chinese growth data and fears that Cyprus was about to sell its gold holdings and flood the market. Analysts at Citi dubbed 2013 to be the year in which the "death knolls ring for the commodity super cycle."

"The shift in gold represents a more confident economic environment where there is a flicker of light at the end of the tunnel to this period of easy money." Goldman Sachs said.